Select Committee on Public Administration Second Report

2  Summary of recent events

12. This report is concerned with more than just the events which gave rise to the police investigation into the possible sale of peerages. Nonetheless, our inquiry has clearly been shaped by those events. We set out here a brief summary of the generally agreed narrative. This summary then informs the discussion of options for reform which makes up the remainder of this report.

13. The first reports that certain nominees to the House of Lords had been blocked (or, more accurately, queried) by the House of Lords Appointments Commission emerged in newspapers in November 2005.[14] In March 2006, the identities of those nominees became public, as did the fact that the four nominees in question had all made undeclared loans to the Labour Party in 2005. The nominees in question were Barry Townsley, a stockbroker who also donated money towards a city academy school; Sir David Garrard, a property developer who also donated money to a city academy; Dr Chai Patel, chief executive of Priory Clinics; and Sir Gulam Noon of Noon Foods. The CPS later confirmed that the police investigation "subsequently revealed that the names of other individuals who had loaned money to the Labour Party appeared on earlier drafts of the working peers list."[15]

14. The police investigation, by a team from the Metropolitan Police led by Assistant Commissioner John Yates, commenced in March 2006, following a complaint made by an Hon. Member belonging to the Scottish National Party that an attempt had been made to confer peerages in contravention of section 1 of the Honours (Prevention of Abuses) Act 1925 ("the 1925 Act"). The complaint alleged that a number of individuals had agreed to make substantial loans to the Labour Party on the understanding that they would be rewarded by the grant of a peerage. Mr Yates has also confirmed to us that he had more than 20 complaints made to him based on these same allegations.[16] The investigation was subsequently widened to consider charges under the Political Parties, Elections and Referendums Act 2000 ("the 2000 Act"), and further "whether certain events might be interpreted as acts tending and intended to pervert the course of justice".[17] The investigation also looked into actions taken by the Conservative Party.

15. All of the events under investigation by the police can be traced back to the parties' need for funding during the May 2005 general election campaign (although the general issue had been around for much longer). Some press coverage at the time reported that the two largest parties were heavily dependent on undeclared loan funding to get themselves through an expensive campaign.[18] Under the 2000 Act there was no legal requirement for parties to declare loans taken out on commercial terms. We now know from the retrospective reporting required under the Electoral Administration Act 2006 that the Labour Party borrowed £11,950,000 in undeclared loans from wealthy individuals between April and October 2005.[19] Other parties had also taken out undeclared loans from individuals and banks.

16. The police investigation was originally envisaged to be of short duration but eventually ran for sixteen months before the final file was handed over to the CPS on 2 July 2007. As at 13 November 2006 we know that the police had already conducted 90 interviews, including 35 within the Labour Party, 29 within the Conservative Party and four within the Liberal Democrat Party. Those numbers included prominent figures such as the former Leader of the Opposition, Rt Hon Michael Howard MP, Cabinet ministers and the then Prime Minister. We understand that this was the first time a sitting Prime Minister had been interviewed as part of a criminal investigation. Assistant Commissioner Yates told us that the cost of the investigation was "around £1 million" with three quarters of that being staff costs.[20] There will also have been costs to the public purse in terms of staff time in government and in the CPS.

17. Four arrests were made in the course of the investigation:

  • Des Smith, the head teacher at All Saints Catholic School and Technology College, Dagenham. Mr Smith was a council member of the Specialist Schools and Academies Trust, which helped the Government recruit sponsors for the City Academy programme. He was alleged to have suggested that honours or peerages might be offered as rewards for sponsoring Academies.[21]
  • Lord Levy, the Prime Minister's Special Envoy to the Middle East and also a key fundraiser for the Labour Party. Lord Levy was arrested in July 2006 and subsequently again in January 2007.[22]
  • Ruth Turner, the Prime Minister's Director of Government Relations. Ms Turner was a Special Adviser reporting directly to Jonathan Powell as Chief of Staff in the Prime Minister's Office.
  • Sir Christopher Evans of Merlin Biosciences. Sir Christopher was a biotechnology entrepreneur who loaned £1 million to the Labour Party in 2005.

The decision not to bring any charges against Mr Smith was announced on 7 February 2007.[23] The investigation of Mr Smith turned out to be substantially unrelated to the other matters under investigation, and we have not attempted to draw lessons from the aspect of the police inquiry.

18. As already stated, the CPS confirmed on 20 July 2007 that no criminal proceedings would be taken forward against anyone connected with the inquiry. This was followed by an announcement in October that no charges were to be brought against anyone linked to the Conservative Party. No investigations are being pursued with regard to any other party.

14   See for example "Inquiry launched as peers fiasco grows", The Independent on Sunday, 6 November 2005, p 4 Back

15   Crown Prosecution Service, CPS decision: "Cash For Honours" case - explanatory document, 20 July 2007, para 9 Back

16   Q 265 Back

17   Crown Prosecution Service, CPS decision: "Cash For Honours" case- explanatory document, 20 July 2007, para 5 Back

18   See for example "Secret loans bolster Pounds 16m Tory election campaign", The Times, 21 April 2005, p 1, or "Election watchdog to investigate party loans", The Guardian, 21 April 2005 Back

19   Statistics from loans from Barry Townsley, Gordon Crawford, Lord Sainsbury, Sir David Garrard, Sir Gulam Noon, Andrew Rosenfeld, Professor Sir Christopher Evans, Dr Chai Patel CBE, Derek Tullett CBE, Nigel Morris and Rod Aldridge. A further £2 million loan from Richard Caring was reported in the Guardian on 21 March 2006, but the Electoral Commission's register does not record this as having been taken out until June 2006. Back

20   Q 338 Back

21   "Revealed: cash for honours scandal; Insight", Sunday Times, 15 January 2006, p1 Back

22   Reported in various newspapers, e.g. Andrew Grice and Colin Brown, "Levy arrested again-and this time on suspicion of perverting course of justice", The Independent, 31 January 2007, p2 Back

23   Crown Prosecution Service, CPS Statement: Mr Des Smith, 6 February 2007 Back

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Prepared 18 December 2007